1. G.R. No.

L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
FACTS:
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 19491950; alleging that such tax is unconstitutional and void, being levied for the aid and support of
the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax
may be constitutioally levied. The action having been dismissed by the Court of First Instance,
the plaintifs appealed the case directly to this Court (Judiciary Act, section 17).
ISSUE: WHETHER OR NOT THE LEVYING OF THE TAX IS CONSTITUTIONAL
RULING: NO.
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries
of our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it is a great source of the state's
wealth, is one of the important sources of foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted among its components to enable
it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237
U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter
of public concern, it follows that the Legislature may determine within reasonable bounds what
is necessary for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed fully play, subject only to the test of reasonableness; and it is not contended that
the means provided in section 6 of the law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and methods are alike constitutionally valid,
no reason is seen why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac.
Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held
that "inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301
U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).
2. VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF
MANILA, respondents.
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as
the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10,
1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be
subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by
the Court to intervene in the case, over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their rights and that their "survival and
very existence is threatened by the unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in Intervention.
ISSUES:
1. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint
of trade in violation of the due process clause of the Constitution;
2. There is undue delegation of power and authority;
3. There is over regulation of the video industry as if it were a nuisance, which it
is not.
RULING:
1. NO. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious
question that a tax does not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts
upon its constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they make available for
public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry
which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that
is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant

violation of intellectual property rights, and the proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled
the legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the state's
police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
2. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed and
limited period, the heads or personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate but merely a conferment of
authority or discretion as to its execution, enforcement, and implementation. "The true
distinction is between the delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid
objection can be made." 14 Besides, in the very language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of such
authority might be the source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate
remedy in law.
3. We do not share petitioner's fears that the video industry is being over-regulated and being
eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the DECREE is to protect the
moribund movie industry, there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber
of the viewing public brought about by the availability of unclassified and unreviewed video
tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the
activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the
video industry. On the contrary, video establishments are seen to have proliferated in many
places notwithstanding the 30% tax imposed.
3. G.R. No. L-25043

April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective
behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
FACTS:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren
by hereditary succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo
Roxas and Jose Roxas, formed a partnership called Roxas y Compania.
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the
payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise
penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00
compromise penalty for late payment. The assessment for real estate dealer's tax was based on
the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00.
Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental
income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is
liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of
securities against Roxas y Cia., on the fact that said partnership made profits from the purchase
and sale of securities.
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the
unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm
lands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that
Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the

Commissioner considered the partnership as engaged in the business of real estate, hence, 100%
of the profits derived therefrom was taxed.
ISSUES:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence
100% taxable?
(2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
RULING:
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real
estate dealer because it engaged in the business of selling real estate. The business activity
alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmersoccupants on installment.
The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal
Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar
circumstances in spite of the fact that there were hundreds of vendees. Although they paid for
their respective holdings in installment for a period of ten years, it would nevertheless not make
the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period.
1. NO. It should be borne in mind that the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in consonance with, but more in
obedience to the request and pursuant to the policy of our Government to allocate lands
to the landless. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms and prices.
However, the Government could not comply with its duty for lack of funds. Obligingly,
Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands
directly to the farmers in the same way and under the same terms as would have been the
case had the Government done it itself. For this magnanimous act, the municipal council
of Nasugbu passed a resolution expressing the people's gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg". And, in order to maintain the general public's trust and confidence in the Government this
power must be used justly and not treacherously. It does not conform with Our sense of justice in
the instant case for the Government to persuade the taxpayer to lend it a helping hand and later
on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence,
pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the
gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.
2. NO. The contributions to the Christmas funds of the Pasay City Police, Pasay City
Firemen and Baguio City Police are not deductible for the reason that the Christmas
funds were not spent for public purposes but as Christmas gifts to the families of the
members of said entities. Under Section 39(h), a contribution to a government entity is
deductible when used exclusively for public purposes. For this reason, the disallowance
must be sustained. On the other hand, the contribution to the Manila Police trust fund is
an allowable deduction for said trust fund belongs to the Manila Police, a government
entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed
on the ground that the Philippines Herald is not a corporation or an association contemplated in
Section 30 (h) of the Tax Code. It should be noted however that the contributions were not made
to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines
Herald solely for charitable purposes. There is no question that the members of this group of
citizens do not receive profits, for all the funds they raised were for Manila's neediest families.
Such a group of citizens may be classified as an association organized exclusively for charitable
purposes mentioned in Section 30(h) of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of
Fatima chapel at the Far Eastern University on the ground that the said university gives
dividends to its stockholders. Located within the premises of the university, the chapel in
question has not been shown to belong to the Catholic Church or any religious organization. On
the other hand, the lower court found that it belongs to the Far Eastern University, contributions
to which are not deductible under Section 30(h) of the Tax Code for the reason that the net
income of said university injures to the benefit of its stockholders. The disallowance should be
sustained.
3. YES. Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax
upon it, because although it earned a rental income of P8,000.00 per annum in 1952, said
rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in
considering as real estate dealers owners of real estate receiving rentals of at least
P3,000.00 a year, does not provide any qualification as to the persons paying the rentals.
The law, which states: 1wph1.t
. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding
himself out as a full or part-time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of three thousand pesos or
more a year: . . . (Emphasis supplied) is too clear and explicit to admit construction. The
findings of the Court of Tax Appeals or, this point is sustained.

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay
the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas
and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their
individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.
4. G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
FACTS:
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt
from the payment of taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise a tax
of two per cent of the gross revenue or gross earning derived by the grantee from
its operations under this franchise. Such tax shall be due and payable quarterly
and shall be in lieu of all taxes of any kind, nature or description, levied,
established or collected by any municipal, provincial or national automobiles,
Provided, that if, after the audit of the accounts of the grantee by the
Commissioner of Internal Revenue, a deficiency tax is shown to be due, the
deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with
existing law.
On the strength of an opinion of the Secretary of Justice, PAL has, since 1956, not been paying
motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.
ISSUE:
1. WHETHER OR NOT REGULATION FEES ARE TAXES
2. WHETHER OR NOT PAL IS LIABLE TO PAY REGULATION FEE FOR THE YEAR 1971
RULING:
1. YES. In view of the foregoing, we rule that motor vehicle registration fees as at present
exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended
for additional revenues of government even if one fifth or less of the amount collected is
set aside for the operating expenses of the agency administering the program.
2. YES.The claim for refund is made for payments given in 1971. It is not clear from the
records as to what payments were made in succeeding years. We have ruled that Section
24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions of
corporate taxpayers found in legislative franchises similar to that invoked by PAL in this
case.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay
to the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual
net taxable income computed in accordance with the provisions of
the Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect
to international airtransport service, only the gross passengers,

mail, and freight revenues. from its outgoing flights shall be

subject to this law.
The tax paid by the grantee under either of the above alternatives shall be in lieu
of all other taxes, duties, royalties, registration, license and other fees and charges
of any kind, nature or description imposed, levied, established, assessed, or
collected by any municipal, city, provincial, or national authority or government,
agency, now or in the future, including but not limited to the following:
xxx xxx xxx
(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9,
1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier
law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board
(LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and
licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree
No. 1590.
SO ORDERED.
5. FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ,
in her capacity as Acting Municipal Treasurer of the Municipality of Las Pias,
respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
FACTS:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986,
which We quote in full, as follows (78 O.G. 5861).

The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He
alleges the following: that Executive Order No. 73 accelerated the application of the general
revision of assessments to January 1, 1987 thereby mandating an excessive increase in real
property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in
the value of real property brought about by the revision of real property values and assessments
would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is
the result of increasing real property taxes at a period of time when harsh economic conditions
prevail; and that the increase in the market values of real property as reflected in the schedule of
values was brought about only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national
association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive
Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners
to raise funds for education, as real property tax is admittedly a local tax for local governments;
that the General Revision of Assessments does not meet the requirements of due process as
regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes
"replacement cost" of buildings (improvements) which is not provided in Presidential Decree No.
464, but only in an administrative regulation of the Department of Finance; and that the Joint
Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional
as it imposes successive increase of 150% over the 1986 tax.
ISSUE: WHETHER OR NOT THE EO IS CONSTITUTIONAL
RULING: YES.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73
insofar as the revision of the assessments and the effectivity thereof are concerned. It should be
emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the
local assessors during the latest general revision of assessments shall take effect
beginning January 1, 1987 for purposes of real property tax collection. (emphasis
supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential
Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor shall
make a calendar year 1978, the provincial or city general revision of real property
assessments in the province or city to take effect January 1, 1979, and once every

five years thereafter: Provided; however, That if property values in a province or

city, or in any municipality, have greatly changed since the last general revision,
the provincial or city assesor may, with the approval of the Secretary of Finance
or upon bis direction, undertake a general revision of assessments in the province
or city, or in any municipality before the fifth year from the effectivity of the last
general revision.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any
owner who doubts the assessment of his property, may appeal to the Local Board of Assessment
Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with
the decision of the Local Board of Assessment Appeals, he may, within thirty days from the
receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the
Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen
days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by
Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional
guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of
Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v. Ancheta, et al. (G.R. No.
59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement
called for therein applies to the "power to tax." Executive Order No. 73 does not impose new
taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an
increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes resulting from the revised real
property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted
herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real
property assessments as provided for under Section 21 of Presidential Decree No.
464, as amended by Presidential Decree No. 1621, shall be collected beginning
January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of
Finance and the Ministry of Local Government to establish the new systems of
tax collection and assessment provided herein and in order to alleviate the
condition of the people, including real property owners, as a result of temporary
economic difficulties. (emphasis supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of the
increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed
Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1,
1985, thus depriving the local government units of an additional source of
revenue;
WHEREAS, there is an urgent need for local governments to augment their
financial resources to meet the rising cost of rendering effective services to the
people; (emphasis supplied)
xxx xxx xxx
We agree with the observation of the Office of the Solicitor General that without Executive
Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived
at several years ago, in disregard of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources of revenues must be adequate
to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
6. G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
FACTS:

The private respondent, a domestic corporation engaged in engineering, construction and other
allied activities, received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for their work in the creation of
the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional
fees to be personal holding company income 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 In fact, as the said court found, the amount was earned
through the joint efforts of the persons among whom it was distributed It has been established
that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to
invest in it. 14 Ultimately, after its incorporation largely through the promotion of the said
persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. 16
ISSUES:
The main issue in this case is whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns
RULING:
NO. There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members
of the same family in control of Algue. It is argued that no indication was made as to how such

payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not
made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It
should be remembered that this was a family corporation where strict business procedures were
not applied and immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal.
This arrangement was understandable, however, in view of the close relationship among the
persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in
accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business may be
included a reasonable allowance for salaries or other compensation for personal
services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation payments is

whether they are reasonable and are, in fact, payments purely for service. This test
and its practical application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase
price of services, is not deductible. (a) An ostensible salary paid by a corporation
may be a distribution of a dividend on stock. This is likely to occur in the case of
a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services,
and the excessive payment correspond or bear a close relationship to the
stockholdings of the officers of employees, it would seem likely that the salaries
are not paid wholly for services rendered, but the excessive payments are a
distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue
nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
SO ORDERED.
7. COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in
Court so that the estate was divided among and awarded to the heirs. Atty Pineda's

share amounted to about P2,500.00. After the estate proceedings were closed, the
BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns
for the estate issued an assessment and charged the full amount to the inheritance
due to Atty. Pineda who argued that he is liable only to extent of his proportional
share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes
assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the
estate as his share in the inheritance, for unpaid income taxes for which said estate is
liable. By virtue of such lien, the Government has the right to subject the property in
Pineda's possession to satisfy the income tax assessment. After such payment, Pineda
will have a right of contribution from his co-heirs, to achieve an adjustment of the
proper
share
of
each
heir
in
the
distributable
estate.
All told, the Government has two ways of collecting the tax in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received; and second, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due.
This second remedy is the very avenue the Government took in this case to collect the
tax. The Bureau of Internal Revenue should be given, in instances like the case at bar,
the necessary discretion to avail itself of the most expeditious way to collect the tax as
may be envisioned in the particular provision of the Tax Code above quoted, because
taxes are the lifeblood of government and their prompt and certain availability is an
imperious need

8. G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.
FACTS:
The judicial proceedings over the present controversy commenced with CTA Case No. 4099,
wherein the Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to
grant a refund to herein private respondent Citytrust Banking Corporation (Citytrust) in the
amount of P13,314,506.14, representing its overpaid income taxes for 1984 and 1985, but denied
its claim for the alleged refundable amount reflected in its 1983 income tax return on the ground
of prescription. It appears that in a letter dated August 26, 1986, herein private respondent
corporation filed a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the excess of its carried-over total quarterly

payments over the actual income tax due, plus carried-over withholding tax payments on
government securities and rental income, as computed in its final income tax return for the
calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive
period, Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income
tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985
does not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and
P28,238.00 claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of
government securities investments, as well as on rental income, respectively, are not properly
documented; that assuming arguendo that petitioner is entitled to refund, the right to claim the
same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295
of the National Internal Revenue Code of 1977, as amended, since the petition was filed only on
August 28, 1986. 5
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the
fact of withholding has been established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents, the authenticity of which were
neither disputed nor controverted by herein petitioner; (2) no evidence was presented which
could effectively dispute the correctness of the income tax return filed by herein respondent
corporation and other material facts stated therein; (3) no deficiency assessment was issued by
herein petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch,
recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which
enjoys the presumption of regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on
the sole ground that the statements and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental
motion for reconsideration was thereafter filed, wherein it was contended for the first time that
herein private respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that
through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8, 1991,
he came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount
of P56,588,740.91 representing deficiency income and business taxes covered by
Demand/Assessment Notice No. FAS-1-84-003291-003296. 13
Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both

motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue
Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received
was declared as part of the gross income, and that the fact of withholding was duly established.
Moreover, with regard to the argument raised in the supplemental motion for reconsideration
anent the deficiency tax assessment against herein petitioner, the tax court ruled that since that
matter was not raised in the pleadings, the same cannot be considered, invoking therefor the
salutary purpose of the omnibus motion rule which is to obviate multiplicity of motions and to
discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with respondent
Court of Appeals which in due course promulgated its decision affirming the judgment of the
Court of Tax Appeals. Petitioner eventually elevated the case to this Court, maintaining that said
respondent court erred in affirming the grant of the claim for refund of Citytrust, considering
that, firstly, said private respondent failed to prove and substantiate its claim for such refund;
and, secondly, the bureau's findings of deficiency income and business tax liabilities against
private respondent for the year 1984 bars such payment.
ISSUE: WHETHER OR NOT CITYBANK SHOULD BE REFUNDED
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of
Internal Revenue, was denied its day in court by reason of the mistakes and/or negligence of its
officials and employees. It can readily be gleaned from the records that when it was herein
petitioner's turn to present evidence, several postponements were sought by its counsel, the
Solicitor General, due to the unavailability of the necessary records which were not transmitted
by the Refund Audit Division of the BIR to said counsel, as well as the investigation report made
by the Banks/Financing and Insurance Division of the said bureau/ despite repeated requests. 17 It
was under such a predicament and in deference to the tax court that ultimately, said records being
still unavailable, herein petitioner's counsel was constrained to submit the case for decision on
February 20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the order of the
Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the
Court of Tax Appeals which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days
after filing his answer, all the records of the case in his possession, with the pages duly
numbered, and if the records are in separate folders, then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division

of the BIR still continued to act administratively on the claim for refund previously filed therein,
instead of forwarding the records of the case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents.19 In the performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. Although the Government may generally be
estopped through the affirmative acts of public officers acting within their authority, their neglect
or omission of public duties as exemplified in this case will not and should not produce that
effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are
the lifeblood of the nation through which the government agencies continue to operate and with
which the State effects its functions for the welfare of its constituents. 21The errors of certain
administrative officers should never be allowed to jeopardize the Government's financial
position, 22especially in the case at bar where the amount involves millions of pesos the collection
whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is
hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further
proceedings and appropriate action, more particularly, the reception of evidence for petitioner
and the corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our
adjudgment herein.
SO ORDERED.
9. FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.
DECISION
FACTS:
More than seven years since the demise of the late Ferdinand E. Marcos, the former
President of the Republic of the Philippines, the matter of the settlement of his estate, and its
dues to the government in estate taxes, are still unresolved, the latter issue being now before this
Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuations of the respondent Commissioner of Internal Revenue in
assessing, and collecting through the summary remedy of Levy on Real Properties, estate and
income tax delinquencies upon the estate and properties of his father, despite the pendency of the

proceedings on probate of the will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
examinations of the tax liabilities and obligations of the late president, as well as that of his
family, associates and "cronies". Said audit team concluded its investigation with a
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a
written notice of the death of the decedent, an estate tax returns [sic], as well as several income
tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue
Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional
Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections 253
and 254 in relation to Section 252- a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate
Tax Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for
the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos
II for the years 1982 to 1985.
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax
assessments were all personally and constructively served upon Mrs. Imelda Marcos (through
her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M.
Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand
'Bongbong' Marcos II were also personally and constructively served upon him (through his
caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal
Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his
office, House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the
other heirs of the late president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property
against certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of
satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The
foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National
Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein
petitioner) calling the attention of the BIR and requesting that they be duly notified of any action
taken by the BIR affecting the interest of their client Ferdinand 'Bongbong Marcos II, as well as
the interest of the late president - copies of the aforesaid notices were served on April 7, 1993
and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De
Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of
Tacloban City. The public auction for the sale of the eleven (11) parcels of land took place on
July 5, 1993.There being no bidder, the lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for
certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and
the collection of taxes, is of paramount importance for the sustenance of government.Taxes are
the lifeblood of the government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax obligations
were taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the
late President Marcos effected by the BIR are null and void for disregarding the established
procedure for the enforcement of taxes due upon the estate of the deceased. The case of
Domingo vs. Garlitos[4] is specifically cited to bolster the argument that "the ordinary procedure
by which to settle claims of indebtedness against the estate of a deceased, person, as in an
inheritance (estate) tax, is for the claimant to present a claim before the probate court so that said
court may order the administrator to pay the amount therefor." This remedy is allegedly,
exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a
request by the government for the immediate payment of taxes, and should order the payment of

the same only within the period fixed by the probate court for the payment of all the debts of the
decedent. In this regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:
On the other hand, it is argued by the BIR, that the state's authority to collect internal
revenue taxes is paramount. Thus, the pendency of probate proceedings over the estate of the
deceased does not preclude the assessment and collection, through summary remedies, of estate
taxes over the same. According to the respondent, claims for payment of estate and income taxes
due and assessed after the death of the decedent need not be presented in the form of a claim
against the estate. These can and should be paid immediately. The probate court is not the
government agency to decide whether an estate is liable for payment of estate of income
taxes. Well-settled is the rule that the probate court is a court with special and limited
jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing. The
court's jurisdiction, once invoked, and made effective, cannot be treated with indifference nor
should it be ignored with impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to
approve the sale of properties of a deceased person by his prospective heirs before final
adjudication;[5] to determine who are the heirs of the decedent; [6] the recognition of a natural
child;[7] the status of a woman claiming to be the legal wife of the decedent; [8] the legality of
disinheritance of an heir by the testator; [9] and to pass upon the validity of a waiver of hereditary
rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of
Internal Revenue to collect by the summary remedy of levying upon, and sale of real properties
of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in
probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made the duty of the probate court to make
the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not
against the property of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee, etc., has in the property formerly held
by decedent. Further, under some statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding between the state and the person who owes

the tax on the inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax are adversary
proceedings. The proceeding has been held to be necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is executive in
character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal
Revenue. Section 3 of the National Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal
Revenue shall comprehend the assessment and collection of all national internal revenue taxes,
fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases decided in its favor by the Court of
Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims
for taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government
funding, immortalized in the maxim that taxes are the lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is opened, need not
be submitted to the committee on claims in the ordinary course of administration. In the exercise
of its control over the administrator, the court may direct the payment of such taxes upon motion
showing that the taxes have been assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far,
even to allowing the enforcement of tax obligations against the heirs of the decedent, even after
distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased, can be collected
from the heirs even after the distribution of the properties of the decedent. They are exempted
from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion
to their share in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received.Another remedy, pursuant to the lien created by Section 315 of the Tax Code
upon all property and rights to property belong to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the payment

of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105,
September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and collected.
10. [G.R. No. 125704. August 28, 1998]
PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE,
FACTS:
On August 5, 1992, the BIR sent a letter to Philex asking it to settle its excise tax
liabilities amounting to P123,821,982.52. Philex protested the demand for payment of
the tax liabilities stating that it has pending claims for VAT input credit/refund for the
taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax liabilities.
In reply, the BIR held that since these pending claims have not yet been established or
determined with certainty, it follows that no legal compensation can take place. Hence,
the BIR reiterated its demand that Philex settle the amount plus interest within 30 days
from the receipt of the letter.
Philex raised the issue to the Court of Tax Appeals and in the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latters tax obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason that taxes
cannot be subject to set-off on compensation since claim for taxes is not a debt or
contract.
Philex appealed the case before the Court of Appeals. Nonetheless, the Court of
Appeals affirmed the Court of Tax Appeals observation. Philex filed a motion for
reconsideration which was again denied. However, a few days after the denial of its
motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only
for the taxable year 1989 to 1991 but also for 1992 and 1994, computed amounting to
205,595,289.20.

In view of the grant of its VAT input credit/refund, Philex now contends that the same
should, ipso jure, off-set its excise tax liabilities since both had already become due
and demandable, as well as fully liquidated; hence, legal compensation can properly
take place.
ISSUE: Whether or not the petitioner is correct in its contention that tax liability and VAT
input credit/refund can be subjected to legal compensation.
HELD:
The Supreme Court has already made the pronouncement that taxes cannot be subject
to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity.
Philexs claim is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philexs whimsical reason would render ineffective our tax
collection system.
Philex is not allowed to refuse the payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is compulsory
rather than a matter of bargain. Hence, a tax does not depend upon the consent of the
taxpayer.If any payer can defer the payment of taxes by raising the defense that it still
has a pending claim for refund or credit, this would adversely affect the government
revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply
because he has a claim against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the government. Moreover, Philex's
theory that would automatically apply its VAT input credit/refund against its tax liabilities
can easily give rise to confusion and abuse, depriving the government of authority over
the manner by which taxpayers credit and offset their tax liabilities.
"The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the
'hen that lays the golden egg.' And, in the order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously."
The petition is hereby dismissed.